Deal valued at $11.3 billion is for the supply of Boeing 737 Max 200 planes at list prices
Southeast Asia’s airline market has witnessed rapid growth over the past decade, fueled by the emergence of low-cost carrier that offers affordable travel plans for the burgeoning middle class population. VietJet, Vietnam’s only private airline and a leading low-cost carrier, that started operations in December 2011, is looking to cash in on this opportunity and strengthen its foothold in a market that has grown at 20% per year over the past three years, as reported by Bloomberg.
The Boeing Company (NYSE: BA), which won an order for 100 jets from VietJet Aviation Joint Stock Co. valued at $11.3 billion (402.5 billion baht) at list price, is indeed another beneficiary of this market growth. VietJet has been rapidly expanding in Southeast Asia while taking on Vietnam Airlines, the national carrier, in the domestic market.
VietJet, which has a 40% share of Vietnam’s domestic market, is looking to surpass Vietnam Airlines this year as the largest domestic carrier. At present, the budget carrier operates over 250 flights per day with 50 routes in Vietnam and to countries including Malaysia, China, Singapore, and Thailand.
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The Boeing deal is the biggest aircraft order in Vietnam’s history and was signed in Hanoi on May 23rd, 2016 during President Barack Obama’s visit to the country. Boeing will deliver the 737 Max 200 planes from 2019 to 2023, helping VietJet expand its fleet to 200 by the end of 2023. The B737 Max 200 aircraft will mainly be used to expand VietJet’s international route network, including long haul flights. So far, VietJet has operated only Airbus A320 airplanes; it currently has 36 Airbus planes in service. In comparison, flag carrier Vietnam Airlines now has a fleet of 89 aircraft.
VietJet expects revenue to double in 2016 from last year’s 10.9 trillion dong ($488 million). It is also looking to increase passenger capacity to 15 million in 2016 from 9.3 million in 2015. The carrier is considering an initial public offering over the next quarter, as part of its plans to build global routes and become Asia’s leading budget airline.
Southeast Asia emerging hub for low-cost airlines
VietJet aims to emerge as a pan-regional low-cost airline, much alike Malaysia’s AirAsia and Indonesia’s Lion Air, which have also ordered hundreds of single-aisle planes such as the A320 and Boeing 737, both of which offer better fuel efficiency and lower running costs. About a dozen low-cost airlines, which started operating in the Asia Pacific region over the past decade, have placed orders for hundreds of aircraft from Airbus Group SE and Boeing.
Further, to overcome challenges in earning revenue and face intense competition, eight low-cost carriers in Asia have joined forces to form the world’s largest alliance called Value Alliance. These carriers are looking for additional gains such as improving distribution and brand awareness, and getting some incremental traffic through the alliance.
Without competition from any other private airline, the Boeing-VietJet deal could prove to be a game-changer in Vietnam’s domestic airline market.